Staff ReportPREPARED BY: STEPHEN CONWAY
Finance Director
Reviewed by: Assistant Town Manager Town Attorney Finance
S:\COUNCIL REPORTS\2016\11-01-16\07 Debt Policy\Long Term Debt and Investment Policy Update 11-01-2016.FINAL.doc
MEETING DATE: 11/01/16
ITEM NO: 7
COUNCIL AGENDA REPORT
DATE: OCTOBER 21, 2016
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: ADOPT A RESOLUTION APPROVING THE TOWN’S LONG TERM DEBT
POLICY, AND ADOPT A RESOLUTION APPROVING THE TOWN’S
INVESTMENT POLICY
RECOMMENDATION:
1. Adopt a resolution approving the Town’s Long Term Debt Policy
2. Adopt a resolution approving the Town’s Investment Policy
BACKGROUND:
The Town demonstrates sounds fiscal administration and updates its financial policies regarding
revenue, expenditure, budgeting, fund balance reserves, capital improvement, long term debt, and
investments. The Town General Fund Reserve Policy was last revised in May 2016. The Town’s
Investment Policy was last updated in November 2014. The policies regarding revenue, budgeting and
expenditure, capital improvement, and long term debt were first incorporated into the Fiscal Year (FY)
2004/05 budget document and have been updated as necessary at the time of the annual budget adoption.
All of the Town’s financial policies are following Government Financial Officers Association
recommendations and meet Government Financial Officers Association standards.
DISCUSSION:
Long Term Debt Policy
The Long Term Debt Policy sets forth certain debt management objectives for the Town and establishes
overall parameters for issuing and administering the debt for which the Town is financially obligated or
is responsible for managing.
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: ADOPT A RESOLUTION APPROVING THE TOWN’S LONG TERM DEBT
POLICY, AND ADOPT A RESOLUTION APPROVING THE TOWN’S
INVESTMENT POLICY
OCTOBER 21, 2016
DISCUSSION (Continued):
The Town’s Long Term Debt Policy was incorporated into the FY 2016/17 Operating and Capital
Budget document. There are no proposed revisions to the current policy.
Investment Policy
The Investment Policy establishes the investment scope, objectives, delegation of authority, standards of
prudence, reporting requirements, internal controls, eligible investments and transactions, diversification
requirements, risk tolerance, and safekeeping and custodial procedures for the investment of the funds of
the Town. All Town funds are invested and/or will be invested in accordance with the Investment
Policy and with applicable sections of the California Government Code.
The following revisions are recommended to the Investment Policy.
Delegation of authority
This revision would change the Town Treasurer to Town Treasurer/Finance Director to reflect the fact
that the Town Treasurer responsibilities are integrated into the Finance Department responsibilities and
assumed by the Finance Director. In 2008, voters passed a ballot measure making the elected position
of Town Treasurer an appointed position. The Town Council has also passed Ordinance 2170 to
delegate the Town Manager responsibility over the new appointed position of Town Treasurer. During
Fiscal Year 2009/10 the treasury responsibilities were absorbed by the Finance Department. By FY
2015/16 the former appointed Town Treasurer transitioned out of the position with the Finance Director
assuming all the treasury duties. The Town’s Investment Policy was last updated before this transition
happened in November 2014.
Selection of broker/dealers
This proposed revision would change how Broker/Dealers are selected. The Town may engage the
services of an investment advisory firm to assist in the management of the portfolio and investment
advisors may utilize their own list of approved broker/dealers. Such broker/dealers are required to
comply with all of the selection criteria of the Investment Policy and the list of approved firms shall be
provided to the Town on an annual basis or upon request. The advisors’ list is much larger than the
Town’s own list which means more investment choices and better pricing for the Town. Also, this
change would shift the responsibility to do the credit rating evaluation work from the Town to the
advisory firm.
Authorized securities and transactions
This revision would change the Medium Term Notes rate requirement from A to “A” to governing
California Governmental Code.
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: ADOPT A RESOLUTION APPROVING THE TOWN’S LONG TERM DEBT
POLICY, AND ADOPT A RESOLUTION APPROVING THE TOWN’S
INVESTMENT POLICY
OCTOBER 21, 2016
DISCUSSION (Continued):
Safekeeping and Custody
This revision would remove the language “delivery by correspondent bank” as that process no longer
occurs.
CONCLUSION:
It is recommended that Town Council adopt resolutions approving the Long Term Debt Policy and the
Investment Policy.
FISCAL IMPACT:
None.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Resolution regarding the Town’s Long Term Debt Policy
2. Proposed Town Long Term Debt Policy (red lined)
3. Resolution regarding the Town’s Investment Policy
4. Proposed Town Investment Policy ( red lined)
1
Resolution 2016-XXX 11/1/2016
ATTACHMENT 1
DRAFT RESOLUTION
RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS
ADOPTING THE TOWN OF LOS GATOS LONG TERM DEBT POLICY
WHEREAS, The Town of Los Gatos Long Term Debt policy is required to be
rendered to and then considered by the legislative body of the local government in a public
meeting; and
WHEREAS, the Town’s existing Investment Policy was first incorporated in the FY
2004/05 Operating and Capital Budget document; and
WHEREAS, the Town’s Investment Policy was incorporated and updated in the
annual operating and capital budget documents; and
WHEREAS, the new policy updates the existing policy to make it current with best
municipal long term debt management practices; and
NOW THEREFORE, BE IT RESOLVED, the Town Council of the Town of Los Gatos has
received and accepted the revised Long Term Debt Policy.
PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of
Los Gatos, California, held on the 1st day of November, 2016 by the following vote:
COUNCIL MEMBERS:
AYES:
NAYS:
ABSENT:
ABSTAIN:
SIGNED:
MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
DATE: __________________
ATTEST:
CLERK ADMINISTRATOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
DATE: __________________
ATTACHMENT 2
COUNCIL POLICY MANUAL
TITLE: Long Term Debt Policy
POLICY NUMBER:
EFFECTIVE DATE:
PAGES:
ENABLING ACTIONS:
REVISED DATES:
APPROVED:
PURPOSE
The Long Term Debt Policy sets forth certain debt management objectives for the Town and establishes
overall parameters for issuing and administering the debt for which the Town is financially obligated or
is responsible for managing.
SCOPE
The following long term debt policy sets the considerations for issuing debt and provides
guidance in the timing and structuring of long term debt commitments.
POLICY
GENERAL PRACTICES
The Town will seek to maintain and improve the current bond rating in order to minimize
borrowing costs and preserve access to credit.
Bond issue proposals are to be accompanied by an analysis defining how the new issue,
combined with current debt, impacts the Town’s debt capacity and conformance with Town
debt policies.
Debt Service costs [General Obligation (GO) Bond, Certificate of Participation (COP), Revenue
Bond, and Contractual Debt] are not to exceed 25% of the Town’s operating revenue.
A ratio of current assets to current liabilities of at least 2/1 will be maintained to ensure the
Town’s ability to pay short-term obligations.
The Town will consider the issuance of long term obligations under the following conditions:
Small Town Service Community Stewardship Future Focus
TITLE: Long Term Debt Policy
PAGE:
2 of 3
POLICY NUMBER:
The Town will use debt financing only for one -time capital improvement projects and unusual
equipment purchases, and only under the following circumstances:
When the project is included in the Town’s five-year capital improvement program and is in
conformance with the Town’s General Plan.
When the project is not included in the Town five-year capital improvement plan, but it is an
emerging critical need whose timing was not anticipated in the five -year capital improvement
program, or it is a project mandated immediately by State or Federal requirements.
When the project’s useful life, or the projected service life of the equipment, will be equal to or
exceed the term of the financing.
When there are designated revenues sufficient to service the debt, whether from project
revenues, other specified and reserved resources, or infrastructure cost -sharing revenues.
Debt financing (other than tax and revenue anticipation notes) is not considered appropriate
for any recurring purpose such as current operating and maintenance expenditures.
The costs of developing and maintaining the Successor Agency to the Town of Los Gatos
Redevelopment Agency (Agency) long term debt policy will be borne by the Agency and will be
developed in conjunction with amendments to existing redevelopment project are a plans
and/or new proposals to issue debt by the Successor Agency to the Town of Los Gatos
Redevelopment Agency.
The Town will follow all State and Federal regulations and requirements regarding bond
provisions, issuance, taxation and disclosure.
Costs incurred by the Town, such as bond counsel and financial advisor fees, printing,
underwriters’ discount, and project design and construction costs, will be charged to the bond
issue to the extent allowable by law.
PROCEDURES
This Long Term Debt Policy shall be adopted by resolution of the Town Council. The Town Manager shall
present this Long Term Debt Policy as needed to the Town Council for review to ensure its consistency
with the Town’s long term debt objectives, and current law. Any amendments to this Long Term Debt
Policy shall be approved by the Town Council.
TITLE: Long Term Debt Policy
PAGE:
3 of 3
POLICY NUMBER:
APPROVED AS TO FORM:
Robert Schultz, Town Attorney
1
Resolution 2016-XXX 11/1/2016
ATTACHMENT 3
DRAFT RESOLUTION
RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS
ADOPTING THE TOWN OF LOS GATOS INVESTMENT POLICY
WHEREAS, The Town of Los Gatos Investment Policy is required to be rendered to
and then considered by the legislative body of the local government in a public meeting; and
WHEREAS, the Town’s existing Investment Policy was adopted in November 2014;
and
WHEREAS, the new policy updates the existing policy to make it current with
California Code and with best municipal investment practices; and
NOW THEREFORE, BE IT RESOLVED, the Town Council of the Town of Los Gatos has
received and accepted the revised Town Investment Policy.
PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of
Los Gatos, California, held on the 1st day of November, 2016 by the following vote:
COUNCIL MEMBERS:
AYES:
NAYS:
ABSENT:
ABSTAIN:
SIGNED:
MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
DATE: __________________
ATTEST:
CLERK ADMINISTRATOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
DATE: __________________
ATTACHMENT 4
COUNCIL POLICY MANUAL
TITLE: Investment Policy
POLICY NUMBER:
EFFECTIVE DATE:
PAGES:
ENABLING ACTIONS:
REVISED DATES:
APPROVED:
PURPOSE
The Town of Los Gatos (the “Town”), incorporated in 1887, is located approximately 60 miles south of
San Francisco, in the southwestern portion of Santa Clara County. The Town operates under the
Council/Manager form of government. The Town Council is the legislative body for the Town. It has five
members elected to serve staggered four year terms. The Town Manager is appointed by the Town
Council.
The Town Council has adopted this Investment Policy in order to establish the investment scope,
objectives, delegation of authority, standards of prudence, reporting requirements, internal controls,
eligible investments and transactions, diversification requirements, risk tolerance, and safekeeping and
custodial procedures for the investment of the funds of the Town. All Town funds will be invested in
accordance with this Investment Policy and with applicable sections of the California Government Code.
This Investment Policy was originally adopted by the Town Council of the Town of Los Gatos on June 16,
2014 November 1, 2016. It replaces any previous investment policy or investment procedures of the
Town.
SCOPE
This Investment Policy applies to all of the Town's short-term operating funds. These funds are
described in the Town's annual financial report and include, but are not limited to:
General Fund
Special Revenue Funds
Capital Project Funds
Debt Service Funds
Enterprise Fund
Internal Service Funds
Small Town Service Community Stewardship Future Focus
TITLE: Investment Policy
PAGE:
2 of 9
POLICY NUMBER:
Fiduciary Funds
Specifically excluded from this Investment Policy are amounts which are held by a trustee or fiscal agent
and pledged as payment or security for bonds or other indebtedness, obligations under a lease, or
obligations under certificates of participation. Such funds are invested in accordance with statutory
provisions, ordinance, resolution, or indenture governing the issuance of the obligations. In addition,
this Investment Policy is not applicable to the Town's Deferred Compensation Plan. These investments
are directed by each employee participant in accordance with the rules of the Deferred Compensation
Plan.
POLICY
OBJECTIVES
The Town’s funds shall be invested in accordance with all applicable Town policies and codes, State
statutes, and Federal regulations, and in a manner designed to accomplish the following objectives,
which are listed in priority order:
1. Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market value rate of return.
4. Diversification to avoid incurring unreasonable market risks.
DELEGATION OF AUTHORITY
Management responsibility for the Town’s investment program is delegated annually by the Town
Council Manager to the Town Treasurer/Finance Director (the “Treasurer”) pursuant to California
Government Code Section 36510. The Treasurer may delegate the authority to conduct investment
transactions and to manage the operation of the investment portfolio to other specifically authorized
staff members. The Treasurer shall maintain a list of persons authorized to transact securities business
for the Town. No person may engage in an investment transaction except as expressly provided under
the terms of this Investment Policy.
The Treasurer shall develop written administrative procedures and internal controls, consistent with this
Investment Policy, for the operation of the Town's investment program. Such procedures shall be
designed to prevent losses arising from fraud, employee error, misrepresentation by third parties, or
imprudent actions by employees.
TITLE: Investment Policy
PAGE:
3 of 9
POLICY NUMBER:
The Town may engage the support services of outside investment advisors in regard to its investment
program, so long as it can be demonstrated that these services produce a net financial advantage or
necessary financial protection of the Town's financial resources.
PRUDENCE
The standard of prudence to be used for managing the Town's investments shall be California
Government Code Section 53600.3, the prudent investor standard which states, “When investing,
reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with
care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited
to, the general economic conditions and the anticipated needs of the agency, that a prudent person
acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like
character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.”
The Town's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The Town recognizes that no investment is totally
without risk and that the investment activities of the Town are a matter of public record. Accordingly,
the Town recognizes that occasional measured losses may occur in a diversified portfolio and shall be
considered within the context of the overall portfolio's return, provided that adequate diversification
has been implemented and that the sale of a security is in the best long-term interest of the Town.
The Treasurer and authorized investment personnel acting in accordance with written procedures and
exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk
or market price changes, provided that the deviations from expectations are reported in a timely fashion
to the Town Council and appropriate action is taken to control adverse developments.
ETHICS AND CONFLICTS OF INTEREST
Elected officials and Town employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program or could impair or
create the appearance of an impairment of their ability to make impartial investment decisions. Elected
officials and Town employees shall disclose to the Town Council any business interests they have in
financial institutions that conduct business with the Town and they shall subordinate their personal
investment transactions to those of the Town. In addition, the Town Manager and the Treasurer shall
file a Statement of Economic Interests each year pursuant to California Government Code Section 87203
and regulations of the Fair Political Practices Commission.
TITLE: Investment Policy
PAGE:
4 of 9
POLICY NUMBER:
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the Town shall be made in accordance with California Government Code
Sections 16429.1, 53600-53609 and 53630-53686, except that pursuant to California Government Code
Section 5903(e), proceeds of bonds and any moneys set aside or pledged to secure payment of the
bonds may be invested in securities or obligations described in the ordinance, resolution, indenture,
agreement, or other instrument providing for the issuance of the bonds. Any revisions or extensions of
these code sections will be assumed to be part of this Investment Policy immediately upon being
enacted. However, in the event that amendments to these sections conflict with this Investment Policy
and past Town investment practices, the Town may delay adherence to the new requirements when it is
deemed in the best interest of the Town to do so. In such instances, after consultation with the Town’s
attorney, the Treasurer will present a recommended course of action to the Town Council for approval.
The Town has further restricted the eligible types of securities and transactions as follows:
1. United States Treasury bills, notes, bonds, or certificates with a final maturity not exceeding five
years from the date of trade settlement.
2. Federal Agency Obligations for which the faith and credit of the United States are pledged for the
payment of principal and interest and which have a final maturity not exceeding five years from the
date of trade settlement. There is no limit on the percentage of the portfolio that can be invested in
this category, however, no more than 20% of the town’s total portfolio shall be invested in the
combination of Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) mortgage-backed
securities.
3. Federal Instrumentality (government sponsored enterprise) debentures, discount notes, callable
securities, step-up securities, and mortgage-backed securities (including FNMA and FHLMC) with a
final maturity not exceeding five years from the date of trade settlement. There is no limit on the
percentage of the portfolio that can be invested in this category, however, no more than 20% of the
town’s total portfolio shall be invested in the combination of GNMA, FNMA, and FHLMC mortgage-
backed securities.
4. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade settlement
with the highest ranking or of the highest letter and number rating as provided for by a nationally
recognized statistical-rating organization (NRSRO). The entity that issues the commercial paper shall
meet all of the following conditions in either sub-paragraph A. or sub-paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a general
corporation, (2) have total assets in excess of five hundred million dollars
($500,000,000) and (3) Have debt other than commercial paper, if any, that is rated “A”
or higher by a NRSRO.
TITLE: Investment Policy
PAGE:
5 of 9
POLICY NUMBER:
B. The entity shall (1) be organized within the United States as a special purpose
corporation, trust, or limited liability company, (2) have program wide credit
enhancements, including, but not limited to, over collateralization, letters of credit or
surety bond and (3) have commercial paper that is rated “A-1” or higher, or the
equivalent, by a NRSRO.
Purchases of eligible commercial paper shall not exceed:
10% of the outstanding commercial paper of any single corporate issuer,
5% of the Town’s total portfolio in the commercial paper of any one issuer, and
25% of the Town’s total portfolio.
5. Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of trade
settlement, issued by a state or national bank with combined capital and surplus of at least $250
million, whose deposits are insured by the FDIC, and whose senior long-term debt is rated at least A
or the equivalent by a NRSRO at the time of purchase. No more than 5% of the Town’s total
portfolio shall be invested in banker’s acceptances of any one issuer, and the aggregate investment
in banker’s acceptances shall not exceed 30% of the Town’s total portfolio.
6. Medium Term Notes issued by corporations organized and operating within the United States or by
depository institutions licensed by the United States or any state and operating within the United
States, with a final maturity not exceeding five years from the date of trade settlement, and rated at
least “A” or the equivalent by a NRSRO. No more than 5% of the Town’s total portfolio shall be
invested in the medium-term notes of any one issuer and the aggregate investment in medium term
notes shall not exceed 30% of the Town’s total portfolio.
7. Municipal & State Obligations:
A. Municipal bonds including registered notes or bonds of any of the 50 states, including bonds
payable solely out of the revenues from a revenue-producing property owned, controlled, or
operated by a state or by a department, board, agency, or authority of any of the 50 states.
B. In addition, bonds, notes, warrants, or other evidences of indebtedness of any local agency in
California, including bonds payable solely out of the revenues from a revenue-producing
property owned, controlled, operated by the local agency, or by a department, board, agency,
or authority of the local agency.
Municipal bonds must be rated at least “A” or the equivalent by a NRSRO with maturities not
exceeding five years from the date of the trade settlement. No more than 5% of the Town’s total
portfolio shall be invested in “A” rated bonds or in the bonds of any one municipality. In addition,
the aggregate investment in municipal bonds may not exceed 30% of the total portfolio.
8. Certificates of Deposit with a final maturity not exceeding five years from the date of trade
settlement. The aggregate investment in certificates of deposit shall not exceed 30% of the Town’s
portfolio, and no more than 5% of the portfolio shall be held in any one deposit or allocated to any
one issuer. Certificates of Deposit shall be issued by a nationally or state-chartered bank or a state
TITLE: Investment Policy
PAGE:
6 of 9
POLICY NUMBER:
or federal savings and loan association or by a state-licensed branch of a foreign bank or by a
federally licensed branch of a foreign bank provided that the senior debt obligations of the issuing
institution are rated at least “A” or the equivalent by a NRSRO.
Negotiable certificates of deposit issued by a nationally or state-chartered bank, or by a federally
licensed or state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposits
are subject to the limitations of Section 53601(i), shall be fully insured by the FDIC with a
corresponding FDIC certification number, and shall be delivered through the Depository Trust
Company.
Non-Negotiable certificates of deposit issued by a nationally or state-chartered bank, or by a
federally licensed or state-licensed branch of a foreign bank. Purchases of non-negotiable
certificates of deposit are subject to the limitations of Sections 53601(n) and 53638 and shall be fully
insured by the FDIC with a corresponding FDIC certification number.
Private sector entities may be used to place certificates of deposit subject to the limitations of
Section 53601.8.
9. State of California’s Local Agency Investment Fund (LAIF), pursuant to California Government Code
Section 16429.1. The aggregate amount invested in LAIF shall not exceed the maximum allowed by
the fund.
10. Money Market Funds registered under the Investment Company Act of 1940 that (1) are “no-load”
(meaning no commission or fee shall be charged on purchases or sales of shares); (2) have a
constant net asset value per share of $1.00; (3) invest only in the securities and obligations
authorized by applicable California Statute and (4) have a rating of at least AAA or the equivalent by
at least two NRSROs. No more than 10% of the Town’s total portfolio shall be invested in money
market funds of any one issuer, and the aggregate investment in money market funds shall not
exceed 20% of the Town’s total portfolio.
Securities that have been downgraded to a level that is below the minimum ratings described herein
may be sold or held at the Town’s discretion. The portfolio will be brought back into compliance with
Investment Policy guidelines as soon as is practical.
The foregoing list of authorized securities and transactions shall be strictly interpreted. Any deviation
from it must be preapproved by resolution of the Town Council.
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow requirements and
known future liabilities. The Town will not invest in securities maturing more than five years from the
date of trade settlement, unless the Town Council has by resolution granted authority to make such an
investment at least three months prior to the date of investment.
TITLE: Investment Policy
PAGE:
7 of 9
POLICY NUMBER:
SELECTION OF BROKER/DEALERS
The Treasurer shall maintain a list of broker/dealers approved for investment purposes, and it shall be
the policy of the Town to purchase securities only from those authorized firms. To be eligible, a firm
must meet at least one of the following criteria:
Be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a primary
dealer within their holding company structure; or
Report voluntarily to the Federal Reserve Bank of New York; or
Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (Uniform Net Capital Rule).
In addition, authorized broker/dealers must be licensed by the State of California as a broker/dealer as
defined in Section 25004 of the California Corporations Code.
Each authorized broker/dealer shall be requires to submit and annually upate a Town approved
Broker/Dealer Information Request form which includes the firm’s most recent financial statements.
The Town may engage the services of investment advisory firms to assist in the management of the
portfolio and investment advisors may utilize their own list of approved broker/dealers. Such
broker/dealers will comply with the selection criteria above and the list of approved firms shall be
provided to the Town on an annual basis or upon request.
In the event that an external investment advisor is not used in the process of recommending a particular
transaction in the Town’s portfolio, authorized broker/dealers shall attest in writing that they have
received and reviewed a copy of the this Investment Policy and shall be required to submit and annually
update a Town approved Broker/Dealer Information request form, which includes the firm’s most recent
financial statements.
The Town may purchase commercial paper from direct issuers even though they are not on the
approved broker/dealer list as long as they meet the criteria outlined in Item 4 of the Authorized
Securities and Transactions section of this Investment Policy.
COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with authorized broker/dealers. At least
three broker/dealers shall be contacted for each transaction and their bid and offering prices shall be
recorded.
If the Town is offered a security for which there is no other readily available competitive offering, the
Treasurer will document quotations for comparable or alternative securities.
TITLE: Investment Policy
PAGE:
8 of 9
POLICY NUMBER:
SELECTION OF BANKS
The Treasurer shall maintain a list of banks and savings banks approved to provide banking services for
the Town. To be eligible, a bank must be a member of the Federal Deposit Insurance Corporation, must
qualify as a depository of public funds in the State of California as defined in California Government
Code Section 53630.5 and shall secure deposits in excess of FDIC coverage in accordance with California
Government Code Section 53652.
Authorized banks that accept deposits from the Town shall meet high standards with regard to liquidity,
asset quality, profitability and capital adequacy. The Treasurer shall utilize a commercial bank rating
service to perform credit analysis on banks seeking authorization. Banks that in the judgment of the
Treasurer no longer offer adequate safety to the Town shall be removed from the Town’s list of
authorized banks.
SAFEKEEPING AND CUSTODY
The Treasurer shall select one or more financial institutions to provide safekeeping and custodial
services for the Town. A Safekeeping Agreement shall be executed with each custodian bank prior to
utilizing that bank's safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services for the Town's account
and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled on a delivery
versus payment basis. All securities shall be perfected in the name of the Town. Sufficient evidence to
title shall be consistent with modern investment, banking and commercial practices.
All investment securities, purchased by the Town will be delivered by book entry and will be held in
third-party safekeeping by a Town approved custodian bank, its correspondent bank or its Depository
Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the Town shall be held in the Federal Reserve System in
a customer account for the custodian bank which will name the Town as “customer.”
All DTC eligible securities shall be held in the custodian bank’s DTC participant account and the
custodian bank shall provide evidence that the securities are held for the Town as “customer.”
TITLE: Investment Policy
PAGE:
9 of 9
POLICY NUMBER:
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout budgetary and
economic cycles, taking into account prevailing market conditions, risk constraints for eligible securities,
and cash flow requirements. The performance of the Town’s investments shall be compared to the
average yield on the U.S. Treasury security that most closely corresponds to the portfolio’s weighted
average effective maturity. When comparing the performance of the Town’s portfolio, its rate of return
will be computed net of all fees and expenses.
REPORTING
No less than quarterly, the Treasurer shall prepare a report of the investment earnings and performance
results of the Town’s investment portfolio. The report shall be submitted to the Town Clerk within 45
days after the end of each quarter for inclusion as an agenda item at the next scheduled Town Council
meeting. The report shall include the following information:
1. Investment type, issuer, date of maturity, par value and dollar amount invested in all securities, and
investments and monies held by the Town;
2. A market value as of the date of the report (or the most recent valuation as to assets not valued
monthly) and the source of the valuation;
3. Realized and unrealized gains or losses calculated by amortized cost and by fair value.
4. The weighted average maturity of the portfolio and a percentage breakdown of the total portfolio
by maturity.
5. A description of the funds, investments and programs that are under the management of contracted
parties;
6. A statement of compliance with this Investment Policy or an explanation for non-compliance; and
7. A statement of the ability to meet expenditure requirements for the next six months, and an
explanation of why money will not be available if that is the case.
PROCEDURES
This Investment Policy shall be adopted by resolution of the Town Council. Annually the Town Manger
shall present this Investment Policy to the Town Council for review to ensure its consistency with the
Town’s investment objectives, current law and economic trends. Any amendments to this Investment
Policy shall be approved by the Town Council.
APPROVED AS TO FORM:
Robert Schultz, Town Attorney